How much should you be investing in Brexit Britain?

UK shares offer good value – but there are risks associated with too much exposure to any one marketCREDIT: SARAH JONES FOR THE TELEGRAPH

Global stock markets have suffered steep falls in recent weeks, bringing to an end the smooth run of substantial gains that had mounted throughout 2017.

But London-listed shares have underperformed most major world markets over the past 18 months. In 2017, while the FTSE 100 gained 10pc, the American stock market surged by more than 20pc and Asian markets by more than 25pc. Anxiety about Brexit has caused international investors to cut back their exposure to British firms.

As Telegraph Money has reported, this has resulted in some opportunities for investors who are prepared to spot undervalued companies – particularly those firms that pay generous dividends – and buy into them at today’s low prices.

But many investors will lack both the time and confidence to undertake strategic investments, advisers have warned. They are more likely to need one-stop solutions that allow them to benefit from Brexit’s opportunities while limiting the overall risk that arises from a “home bias” – where a disproportionate amount of your Isa or pension savings is focused on the UK.

How ‘British’ are your current investments?

Sophie Kilvert of Seven Investment Management, the asset manager, estimated that nine in 10 savers had a UK bias. She said: “Home bias is understandable. People feel more comfortable investing in companies they have heard of. But most people are probably already overexposed to the UK’s economic fortunes – through their job, house and wages – before they even invest.”

London’s stock market is highly international. While companies might have shares listed in Britain, many of their earnings derive from elsewhere. This can make it harder for investors to gauge their exposure to the UK as opposed to other markets. Currency fluctuations also play a part.

A fall in sterling has benefited some UK shares: where the companies’ earnings are in dollars, for instance, share prices have tended to rise in sterling to reflect their higher dollar value.

The key is to gain exposure to a mix of assets across industries, countries and currencies. And not to become too fixated with single or localised issues – including Brexit.

Anthony Rayner, a fund manager at Miton, the asset manager, said: “During a recent 95-minute televised debate before the German election, Brexit wasn’t mentioned once. If you’re based in the UK, it’s difficult to appreciate how this could be.”

In an ideal world, investors would simply avoid stock markets in the midst of a dip and back those poised to make gains, but we are notoriously bad at predicting such things.

Investors have a tendency to invest in shares after they have performed well and sell them at their lowest point.

Global fund managers have the flexibility to invest in countries across the globe, allowing them to take advantage of the best opportunities and avoid areas where the outlook is less positive.

A fall in sterling has benefited some UK sharesCREDIT: DANIEL SORABJI/AFP

Brian Dennehy at Fund Expert, the investment shop, said: “Picking a good global fund means investors can leave the stress of choosing where to invest to the manager.”

Steve Weeple, a global fund manager at Janus Henderson, the asset manager, said being able to invest across a range of countries allowed him to spread the risk.

He said: “I enjoy the freedom of being able to look for the best companies to invest in, regardless of the country they are based in or their sector.”

Investors who opt for a global fund still need to find the best one to suit their needs. Mr Dennehy said: “Investors need to be careful when selecting. Some funds will be quite broad, investing across many markets, while others will be focused in specific areas.”

Many global funds have a large proportion of their money in American companies, but that’s not surprising given the size of its economy. It could be a concern if you think American stocks are overvalued though, so these investors need to delve under the bonnet of the funds.

Mr Dennehy likes the Threadneedle Extended Alpha fund, which has around 70pc of its money in the US. The fund, which would have turned £10,000 into £23,060 over the past five years, backs big tech companies such as Apple and Microsoft and financial firms including Visa and Bank of America.

He also likes Baillie Gifford International, which spreads its money more widely across countries including Japan and South Africa.

It has investments in fast-growing Asian businesses, such as chip maker Taiwan Semiconductor and Chinese ecommerce company Alibaba. It would have turned £10,000 into £23,000 over the past five years.

Those investors who want a low-cost way to invest across a range of countries can choose a “tracker” fund, which mirrors the performance of several global stock markets. Among the Telegraph 25 list of favourite funds is the Legal & General International Index Trust, which tracks markets in countries including the US, Japan and Germany. It has an annual fee of 0.13pc.

Investment trust Scottish Mortgage also appears on the Telegraph 25 list. The trust seeks out companies that profit from changes such as disruptive technology. It has tripled investors’ money in the past five years and its largest investments include electric car maker Tesla, French luxury brands company Kering and Chinese internet giant Baidu.